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Income Tax Appellate Tribunal, AMRITSAR BENCH, AMRITSAR.
Before: DR. M. L. MEENA & SH. ANIKESH BANERJEE
Per: Anikesh Banerjee, JM:
The instant appeal is directed against the order of Ld.
Commissioner of Income Tax (Appeal)-4, Ludhiana {in brevity
CIT(A)} bearing appeal no. 331/ROT(379)/IT/CIT(A)-
4/LDH/2014-15, order passed on dated 22.12.2017, passed
ITA No. 126/Asr/2018 The Baghapurana Coop. M. S. Ltd. v. ITO u/s. 250(6) of the Income Tax Act, 1961 (in brevity of the Act)
for the assessment year 2010-11. The impugned order was
originated from the order of Income Tax Officer -II, Moga (in
brevity A.O) passed u/s.143(3) of the Act, date of order
01.03.2013.
The ground of the assessee is extracted as follows: -
That on the facts & circumstances of the case, the order of the Ld. A.O. is bad in law. 2. That the Ld. Assessing Officer is not at all justified in rejecting deduction u/ s 80P of the Income Tax Act, 1961 amounting Rs.2,73,342/— on account of interest received from various Banks other than Co—operative Bank. However, it is worthwhile to mention that the interest earned on the deposits with banks does not arise out of one or more of the activities specified in 80P (2)(a)(i) but the interest received by the appellant on the bank deposit is ancillary and incidental to carrying on the business of providing credit facility to its members and, as such, exempt under the aforesaid provisions. 3. That the Ld. Assessing Officer is also erred in disallowing provision for repair & maintenance expenses amounting Rs.1,12,660/-& insurance expenses amounting Rs. 16,697 / without any solid reason. 4. That the Ld. Assessing Officer is not at all justified by disallowing gratuity reserve amounting Rs. 2,76,000/— debited to P & L A/c. without any solid reason. However, as per section 40A(7), where any provision of gratuity (to meet liability of gratuity in future) is made by way of any contribution towards any approved gratuity fund is exempt u/ s 40A(7) and fully allowable expenditure. 5. Kindly stay the demand.
ITA No. 126/Asr/2018 The Baghapurana Coop. M. S. Ltd. v. ITO 6. That the Ld. CIT (A) -4 is not at all justified in dismissing the appeal of assessee. 7. That the assessee craves to leave to add/ alter any of the grounds of appeal on or before the date of hearing.”
The brief fact of the case is that appellant is Society filed
its return u/s. 139(1) declaring total taxable income at NIL.
During assessment proceedings, the ld. AO found that assessee
received interest total amount of Rs.6,69,669/- from Bank from
surplus funds invested in the bank and in Central Cooperative
Bank which did not relate to the member of society. The ld. AO
treated the interest u/s. 56 of the Act and disallow the
exemption claimed u/s. 80P(2) claimed by the assessee
treating its income under the head “Business and Profession”.
The considering fact, the assessee added back the interest
2,73,342/- on account of income from other sources by
invoking section 56 of Act. Interest which was added u/s. 56
was received from Scheduled bank, Axis Bank, Baghapurana
and Punjab National Bank. The ld. AO also made addition of
Rs.1,29,357/- disallowing the repair expenses and pre-paid
insurance debited to the Profit & Loss account of the assessee’s
society on account of personal use. The ld. AO also made
ITA No. 126/Asr/2018 The Baghapurana Coop. M. S. Ltd. v. ITO addition of Rs.2,76,000/- by disallowing the expenses for
payment to gratuity debit to the Profit & Loss account of the
assessee’s society by invoking the provisions of section 40A (7)
of the Act. Aggrieved assessee filed appeal before the ld.
CIT(A). The ld. CIT(A) upheld the order of ld. A.O. Being
aggrieved assessee filed an appeal before us for further
adjudication.
The detail observation was made by the ld. AO in his
Order in para no. 2. The extract of order is reproducing as
below:-
“2. During the course of assessment proceedings, while examining the profit & Loss account it reveals that the assessee society has received interest of 6.69.669/- from bank from surplus fund invested in the Bank and in CCB which is not related to the member of the society vide order sheet entry dated 22.01.2013, the Counsel of the assessee was asked to plain why above interest of Rs.6,69,669/- may not be assessed as income from other r sources u/s. 56 of the I.T. Act, and treated it as income under the head business or profession u/s. 28 as this income is received from the investment of surplus fund in the light of the case. The Totgar cooperative Sales |Society Ltd. Vs. ITO 322 ITR 283(SC)(2010) which was also discussed. On 01.03.2013 Sh Yogesh Thakur, counsel of the assessee has furnish the party reply regards to deduction claimed u/s.80P(2)(d) i.e. investment in CCB amounting to Rs.3.96.327/- (Rs.3,85,984 + Rs.10,343) and balance amount of invested and deposited in Axis Bank of Rs.2,72,509/- and Rs.833/- in PNB Bank is not except claimed u/s.80P(2)(a)(i) as income received from surplus fund as interests is not relates to member of the society. Reliance is placed on The Totgar Cooperative Sale Society Ltd. Vs. ITO 322 ITR 283(SC)(2010) which is against the
ITA No. 126/Asr/2018 The Baghapurana Coop. M. S. Ltd. v. ITO assessee. Hence, I hereby made an addition of Rs.2,73,342/- on account of income from other sources and assessed u/s. 56 of the IT Act, 1961 and not treated as income from business or profession u/s.28 of the IT Act 1961. Penalty u/s. 271(1)(c) of the I.T. Act, 1961 is being initiated for giving inaccurate particular of income & claiming wrong deduction.”
As per the findings of the ld. AO related to interest from
Axis Bank and PNB amount to Rs. 2,72,509/- and Rs.833/-
respectively which were added back with the total income of
the assessee by invoking the provisions of section 56 of the
Act. As per the respectful observations of the case of M/s.
Totgar Cooperative Sale Society Ltd. Vs. ITO 322 ITR
283(SC)(2010), the assessee is a cooperative society engaged
in the business to provide credit facility to its members and to
the market the agricultures product of its member. The
Appellant is also cooperative society dealing in fertilizers and
agricultural inputs etc. The interest was earned by the
appellant. Interest from Nationalised bank like Axis Bank and
PNB is not allowable u/s. 80P (2) of the Act but invoking
section 56, the interest would be taxable in the assessee’s
hands.
ITA No. 126/Asr/2018 The Baghapurana Coop. M. S. Ltd. v. ITO 5.1. The ld. DR also argued in the same line and relied on the
order of Revenue Authority. The ld. AO correctly pointed out
that the interest which is only related to the bank is liable to be
taxed by invoking section 56 under the head “Income from
other sources”.
5.2. In the result the ground no. 2 of the assessee is
dismissed.
Here we are adjudicating the disallowance of provisions
for repair and maintenance expenses Rs.1,12,660/- &prepaid
insurance expenses Rs. 16,697/- and Gratuity reserve payment
to Rs. 2,76,000/- which were added back with the total income
of the assessee.
6.1 We carefully considered the fact and relied on the
documents available in the record. As per Audit report filed by
the assessee in Form No. 3CD and in column no. 17(b), the
expenditure relating to Repair & Maintenance and prepaid
Insurance had been clarified as expenses of Personal nature.
The assessee was unable to file an corrigendum from the
Chartered Accountant against the observations of Chartered
ITA No. 126/Asr/2018 The Baghapurana Coop. M. S. Ltd. v. ITO Accountant in the Tax Audit Report during proceeding before
the fiscal.
6.2 In case of Gratuity Reserve payment Rs.2,76,000/-, the
assessee was unable to produce any particular before any of
the fiscal that the payment was made to the approved Gratuity
fund. The contributions made by the assessee to the gratuity
fund which will be allowable expenditure if fund is approved
gratuity fund. In both the cases, assessee was unable to bring
any record to prove before the Bench relating the expenses are
allowable expenditure. Both the Revenue Authorities have
discussed the issue in detail. The assessee was unable to
submit any document/proof before any the authority. As the
assessee is Society and continuing the business as cooperative
society. We feel not to intervene in the order of revenue
authorities. The addition made by the ld. AO are accepted by
us. The ld. DR also accepting the facts and prayed for addition
of the expenses. But considering the natural justice the
assessee should get another opportunity to file its evidence
related the additions, made by the ld. AO before the Ld.
CIT(A).
ITA No. 126/Asr/2018 The Baghapurana Coop. M. S. Ltd. v. ITO
Accordingly ground no. 3 & 4 are setting aside before the
ld. CIT(A)for further adjudication. The assessee should get
reasonable opportunity to substantiate its claim.
In the result, ground nos. 1, 4 & 5 are general in nature.
Ground No. 3 need not be adjudicated in this case. Ground
no.2 is dismissed. Ground nos. 3 & 4 are allowed for statistical
purpose.
In the result, the appeal of the assessee is partly allowed.
Order pronounced in the open court on 12.07.2022
Sd/- Sd/- (Dr. M. L. Meena) (Anikesh Banerjee) Accountant Member Judicial Member
Copy of the order forwarded to:
(1) The Appellant (2) The Respondent (3) The CIT (4) The CIT (Appeals) (5) The DR, I.T.A.T.